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Summary for Week Ending 25th September 2004
Last week I said that Oil was no longer a factor as far as the markets are concerned. This week we saw Oil again come to the fore as well as interest rates so it just goes to show that just because you think its so, doesn't necessarily make it so. The market decided to take a considerable shunt southwards this week and perhaps we are seeing the beginning of a potent change in trend. For the past 2 weeks I have mentioned that the 21st/22nd where dates to watch for a Change in trend and the 21st was the date that appears to have come good, and seeing the predicting time is such a probabilistic exercise, its always a thrill when these predicted movements come off so well.
This week we again saw the market trade to a new high after the low on Monday. This was a 1 day recovery and we needed this to follow through on the Wednesday and extend the wave movement beyond 16 (previous Swing high length) points to show that we were seeing a breakout on the upside. Instead on Wednesday we saw the market take a bucketing to the downside breaking effortlessly through a number of basic technical support levels . This was the breakdown that I was expecting as I have been counting the waves over the past few weeks, indicating that this run was reaching its end. I did not expect that the reaction would be as pronounced, as it certainly caught me by surprise. Looking at the dimension of the downside movement we are currently at 23 points, the previous major swing against the trend being 15 points so we can see that we have now witnessed the largest break against the trend for this run so we have a major signal that we have a change in trend in place.
The strong possibility of a change in trend means that we are now looking for confirmation, that being a lower swing high and which should then be followed by a price collapse down to the 1095 level. From here we can construct a scenario for the decline. Looking at the chart we can see that the 50% retracement level lies around 1095. Assuming that this weeks decline ended on Thursday AND we are expecting wave equality, then we can add 23 points to the 1095 low (31 Aug) which gives us 1118. Interestingly, 1118 is the 50% mark between the 21-23 Sept range, so we can see how this scenario works itself mathematically. What should be of interest is the level of retracement against this decline, the deeper the market rallies back up to the old highs, the lesser the probability of a drive to lows around 1095, on the other hand if the market rallies below the 50% level ( 1118) the we can assume the market to be especially weak and therefore more likely to drive below the 1095 support level.
The coming weeks should be interesting.
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